Payday lending: A cycle of debt and desperation

During the past year, payday lenders and those who issue car-title loans have taken more than $8 billion in fees and interest from families in the U.S. who took out loans that operate as debt traps, according to a coalition of consumer groups and others that has formed to put a halt to the practice.

Now some in Congress, with the support of the Trump administration, want to repeal a tough new rule crafted by the Obama administration to curtail the practice of payday lending.

The rule, proposed by the Consumer Financial Protection Bureau (CFPB), was meant to protect the millions of Americans who take out payday loans every year. After extensive research, CFPB found that payday loans are structured to trap people in debt, requiring multiple new loans at outlandish interest rates. CFPB’s response: to require lenders to determine a borrower’s ability to repay, and to verify a borrower’s income, outstanding debts, and minimum basic needs in order to make a reasonable determination that a borrow could repay a loan.

But on Tuesday, Jan. 16, the CFPB’s Acting Director, Mick Mulvaney (simultaneously Trump’s Office of Management and Budget Director and installed at CFPB to rein the agency in), issued a terse statement indicating that the new rules might not take effect after all:

“January 16, 2018 is the effective date of the Bureau of Consumer Financial Protection’s final rule entitled “Payday, Vehicle Title, and Certain High-Cost Installment Loans” (“Payday Rule”). The Bureau intends to engage in a rulemaking process so that the Bureau may reconsider the Payday Rule.”

The second and final paragraph of Mulvaney’s statement, issued by the CFPB, seemed to indicate that payday lenders might obtain a waiver from the new rule while the rulemaking process is reconsidered.

It is clear that Mulvaney, a former Congressman from South Carolina who once called the Bureau a “sad, sick joke” and once jokingly referred to himself as a “right wing nut job,” has never met Stephany Morales.

“Stephany Morales was a single mom in college, studying to be a nurse, when her toddler got a chest infection. Her insurance wouldn’t cover the $400 cost of nebulizer treatments her pediatrician prescribed, so she turned to a payday loan, thinking this would be a one-time expense.

“But between food, rent and tuition, Stephany didn’t have enough to pay the loan back when it came due two weeks later. She had to re-borrow, and before long she was drowning in debt. Stephany had to drop out of school just two quarters short of getting her degree and license to practice as a nurse, lost her car and almost lost her apartment.

“Now, nearly four years later, Stephany’s already paid over $13,000. She had to move in with family to make ends meet, is still taking the bus and struggles even to get a cell phone because her credit is shot.”

So what can be done? Fortunately, a coalition called Stop Payday Predators has formed and has launched the #StopTheDebtTrap campaign. The coalition consists of more than 500 civil rights, consumer, labor, faith, veterans, seniors and community organizations from all 50 states. Their website states:

“The mission of Stop Payday Predators is to lift up the voices of the hundreds of thousands of Americans who are demanding real reform to the payday and car title loan industry. Our message is a simple one: the Consumer Financial Protection Bureau must Stop Payday Predators from trapping American families in a cycle of debt.”